Why do Currencies Fluctuate So Often?
The answer is supply and demand. The value of anything is defined by the amount it is available plus how many desire to buy it. The same applies to currency as well. The world’s currencies are sold and bought based on their supply and demand in the foreign exchange market.
If demand increases for a particular currency, but it’s available in limited quantities, its value, aka exchange rate, will increase. At the same time, a decrease in demand or an influx in supply will lower its value. This equation is hugely impacted by factors such as the central bank’s monetary policy, inflation rates, and the conditions involved with a country’s political and economic environment.
These factors, however, are also affected by currency fluctuations; hence the cause and effect are the same in the cycle of economics.
Currency Fluctuations and Its Impact on the Economy
Now and then, you keep reading about the currency fluctuations, especially given the current economic and political conditions; it seems to be hitting all-time highs or lows. Recently, the Indian rupee hit 83.3 against the $1 US dollar.
Currency Fluctuations and Its Impact on the Economy
You know that currency is normally seen from the lens of exchange rates. In today’s era of globalization, the trading of goods and services is more common than ever between countries. And exchange rates define the price you pay for buying products from other countries. In this article, we’ll cover what currency fluctuation is and how it impacts the economy.